Major Setback in Last-Ditch ‘Fiscal Cliff’ Talks

(NEW YORK) -- Democratic Senate Leader Harry Reid (D-Nev.) on Sunday rejected the latest offer from Republican Leader Mitch McConnell (R- Ky.), pushing the country that much closer to the fiscal cliff as the senators scrambled to find a bipartisan deal before automatic tax cuts and spending hikes kick in for the new year.

A senior Democratic aide says that, although talks continue, the McConnell offer was “a major setback.”

“We are hugely disappointed,” the aide tells ABC News.

The McConnell offer, according to the aide, included:

- An extension of the Bush era tax cuts for taxpayers who earn “well above” the $250,000 income level that Democrats proposed

- An extension of the current estate tax

- A reduction in cost of living increases for Social Security recipients (“chained CPI“), which is a major sticking point for some Democrats

- No increase in the debt ceiling, which would set up another tough fiscal debate early in the new year

For Democrats, the Social Security provision, which was offered by President Obama as part of a grand bargain that would have included $1.4 trillion in tax cuts and an increase in the debt ceiling, is a non-starter and was never going to be part of this stop-gap deal.

“We are now further apart than we were 24 hours ago,” the aide says.

The “major setback” of talks was evident on the floor of the Senate this afternoon.

“I’m concerned about the lack of urgency here, I think we all know we are running out of time,” McConnell said, “I want everyone to know I am willing to get this done, but I need a dance partner.”

McConnell said he submitted the Republicans’ latest offer to Majority Leader Reid at 7:10 p.m. last night and was willing to work through the night.

But Democrats have not made a counter-offer and Reid rejected McConnell’s proposal.

“At this stage we’re not able to make a counteroffer,” Reid said, noting that he’s had numerous conversations with President Obama yet the two parties are still far apart on some big issues. “I don’t have a counter-offer to make. Perhaps as the day wears on I will be able to.”

McConnell said that he believes there is no major issue that is the sticking point but rather, “the sticking point appears to be a willingness, an interest, or frankly the courage to close the deal.”

McConnell placed a call to Vice President Biden to see if he could “jump start the negotiations on his side.”